Should the Kentucky State Auditor Look Annually at Cities’ Finances?

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An influx of allegations pertaining to misappropriated funds in Kentucky city governments has sparked debate of whether the state auditor should do annual inquiries into their budgets .

The issue was discussed last week in the General Assembly’s Interim Joint Committee on Local Government.

Current statutes require annual audits of county governments by the office of state Auditor Adam Edelen. For their part, cities are allowed to hire private firms to conduct yearly audits.

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The state auditor’s office could conduct more thorough investigations of Kentucky cities’ spending than independent firms—but it would need more resources, said Stephenie Hoelscher, spokeswoman for the state auditor’s office.

“It would take a massive infusion of general fund money to help cover those costs,” she said. “We would have to bring on several dozen more auditors to handle the workload.” Hoelscher said the state auditor’s office currently conducts more than 600 statutorily required audits.

The addition of nearly 400 individual municipalities would be a burden to the office that is already “doing more with less” because of budget cuts.

Since 2008, the state auditor’s office general fund allocation has been slashed by 24 percent, as is the case with other state agencies, Hoelscher said.

Hoelscher said when the state auditor agency is called in to investigate a municipality it uses creative techniques to recommend methods to reappropriate funds in effort to get a budget back on track.

The challenge, in some cases, is encouraging city-leaders to go beyond the simple act of being audited and turn the state auditor’s suggestions into practices.

“An audit isn’t the final say,” Hoelscher said. “It should be used as a tool to help entities dig in and see if their finances are being managed properly.”

But audits work, Hoelscher said. The return on investment that state sponsored audits provide is “shocking,” she added.

“We went into Dayton Independent School District and identified a quarter of a million dollars that was misspent by the former superintendent,” she said. “It appears that there will be a return of some of that money back to taxpayers.”

Another example of a high return on investment came from an investigation of the Bluegrass Mental Health and Retardation Board in Lexington that resulted in a $308,000 refund to the state.

“That is real money being returned to taxpayers,” Hoelscher said.

J. D. Chaney, the chief governmental affairs officer for the Kentucky League of Cities, said the KLC has no official opinion on the issue, but the statutes, as written, outline very similar requirements for auditing county and city governments.

“That was the issue that came up last week, was the comparison that counties had more stringent auditing requirements,” Chaney said.

Chaney said that transparency within city governments should not be an issue because regulations already in place require municipalities to make public the findings of audits in newspapers.

“I don’t know if city leaders would oppose, I don’t think they have anything to hide, but the point of the meeting was that we do have laws on the books that provide for extensive auditing procedures,” Chaney said.

Hoelscher said the state auditor’s office conducts investigations into city government upon allegations that spark concern.

Currently, the state auditor is investigating the city of Barbourville due to “several serious allegations of financial mismanagement,” Hoelscher said.

Hoelscher said the annual presence of the state auditor office in local governments does not always prevent misappropriation of funding or financial mishaps.